MoF may remove surcharge on IT

MoF may remove surcharge on IT

NEW DELHI, JAN 28: Finance ministry is likely to retain the income tax exemption limit of Rs 50,000 in the forthcoming budget. The ministry, however, may revise the tax slabs, which attract tax rates varying from a minimum of 10 per cent to maximum of 30 per cent, and do away with the surcharge, providing some relief to the tax payers.

The Shome Committee report said that removal of surcharge and changes in tax slabs might result in a revenue loss of Rs 6,000 crore at the current level of compliance. However, the theoretical revenue loss would be more than neutralised in on account of expected improvement in compliance.

The committee has said that in future government must desist from imposing surcharge since "these have the effect of increasing marginal rates of tax which adversely affect compliance. The revenue gain from such discretionary change is always illusory." The report further added that all such levies should only be through adjustment in the base tax rates to avoid complexities in tax calculations.

As as long-term strategy to raise revenue from direct taxes, the committee has suggested that the basic exemption limit must be a moderate level; the number of tax slabs should be few and fairly large to minimize distortions arising out of bracket creep; and the maximum marginal rate of tax should be moderate so that the distortions in the economic behaviour of the taxpayer and incentive to evade tax payment are minimized.